Five Things to Consider Before Taking Out a Car Loan

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Driving a new or used car off the sales lot can be exciting. However, some new car buyers do not plan their expenses well enough and are unable to make payments after they purchase a new car. Be sure you know what you are getting into before you sign any loan agreement. Many other costs accrue when you purchase a new car. Make sure you can cover all of these costs before you purchase a new car. The five most common costs to consider before purchasing a car are:

Annual Interest Rate

This is the annual interest rate on the auto loan. This is not the APR, which takes into account other costs associated with the loan. However, the annual interest rate will affect the amount of money you spend on your car every year. A high annual interest rate will cost purchasers more money than those who have a low annual interest rate. If you have a low credit score, you will have a higher annual interest rate than those who have a high credit rating.

Be sure to ask about the annual interest rate before you make any loan agreements. If your annual interest rate is too high, the car you thought you could afford will begin costing too much and you will fall behind on payments.

Monthly Interest Rate

This is not your total monthly payment. Your monthly car payment is taxed at this rate. A loan applicant with a low credit score should expect to pay a much higher interest rate than a loan applicant with a good credit score. The monthly interest rate can significantly change the amount you must pay monthly. Before purchasing a vehicle, be sure to ask the loan agent for these numbers. By being proactive in the purchasing process, you can be sure that you receive a monthly interest rate you can afford. Too often people do not understand that their monthly payment will increase due to the monthly interest rate.

Car Insurance Costs

Car insurance rates vary depending on the type of coverage you need or choose to use. Some auto loan companies require that car loan applicants have full coverage insurance. This means that the drivers have the most comprehensive coverage available, in case the car is damaged in an accident or by a natural disaster.

Contact several car insurance agents and discuss rates with them before you purchase a car. Certain characteristics, although uncontrollable, are considered risk factors to insurance agencies. These factors, including age and sex, will increase your insurance costs. Your driving history will also affect costs. Drivers with multiple tickets or reckless driving histories will be considered higher risk and be forced to pay higher rates. In the event that you are involved in an accident with the newly purchased car, your insurance rates will rise again.

If you are a homeowner and have coverage on your home, talk to your homeowner's insurance agent. You might be able to use the same insurance company and receive a discounted rate on car insurance. Likewise, anyone renting a home or apartment can talk to his or her insurance provider for a package deal.

Fuel Costs

There are several reasons to consider fuel cost before purchasing a new car.

  • Your old car might get better fuel mileage than the new car
  • Your new car might take a more expensive type of fuel
  • Fuel prices might increase after you purchase the car

Other factors such as the length of your commute will also help you determine how much you are going to spend on fuel. If you can afford to purchase a car, make sure you can afford the fuel so you can drive the car too. A car is useless if you are

Repair and Maintenance Costs

Repair costs are hard to predict. These costs occur when something unexpected goes wrong with your vehicle. Although you might have money in the bank, you might have been saving the money for your next car payment or another bill. If you have to dip into funds that you have set aside for other bills, you are going to default on your loan or insurance. Regardless of what the money was supposed to cover, you will be setting yourself up for a hit on your credit score. To alleviate this problem, set money aside so that you are able to fix your car if something goes wrong unexpectedly.

Maintenance costs include the money you will spend to keep your car running smoothly. These costs include:

  • Oil changes
  • Tire rotations
  • New tires
  • Tune ups
  • Oil, antifreeze, power steering fluid, etc

New cars usually come with a maintenance schedule. You can find this toward the back of the owner's manual. Look at the maintenance schedule before purchasing any car. The maintenance schedule will give you a better idea of the maintenance costs accrued over the lifetime of the vehicle. Maintenance is necessary to keep your car functioning at an excellent performance level. Car owners who choose to ignore their car's maintenance needs are running the risk of lower trade-in values and shortening the life of the vehicle.

What to do next

Finance Comparison lists a number of highly competitive car loans that you can apply for online. Simply compare rates, terms and apply online.

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